What is Crowdfunding?

Global crowdfunding is set to double this year with the amount raised hitting $34.4 billion, says a new report from Massolution Research.

Crowdfunding is the process of asking the general public, investors, institutional investors, hedge funds and other funding organisations for a peer 2 peer crowdfunding loan, an equity investment, or a donation. Crowdfunding helps start-ups and established businesses gain access to working capital for new projects and there are 1250 active crowdfunding platforms (CFPs) across the world.

Crowdfunding helps entrepreneurs and small business owners bypass the traditional venture capitalists and angel investors entirely and instead pitch ideas straight to everyday Internet users, who provide financial backing through their online system known as a platform. At the same time, you will also gain early validation of project concepts and the projected scope of target markets.

A 2013 report Andy Davis a financial writer specialising in alternative finance, showed that overall lending by banks to SMEs continues to shrink. What is also clear is that while the overall market for lending to SMEs is shrinking, parts of it are growing very quickly. In particular, the value of loans made via debt Crowdfunding platforms to SMEs is growing at 100%-200% a year, as it has been for some years already.

Equity crowdfunding as a concept first developed in the US in the mid 2000s, and took off in the UK in 2011 with the launch of Crowdcube. Since then, many other platforms have appeared, some of which are experimenting with different models and niches (discussed below). Seedrs became the first crowdfunding platform to be regulated by the Financial Conduct Authority (FCA); since then the FCA has taken an active role in monitoring equity crowdfunding activity and providing a regulatory framework to support these developments.

Global crowdfunding experienced accelerated growth in 2014, expanding by 167% to reach $16.2 billion raised, up from $6.1 billion in 2013. In 2015, the industry is set to more than double once again, on its way to raising $34.4 billion.

Lending-based crowdfunding dominates the industry, with $11.08 billion raised in 2014, with the investment-focused rewards and equity-based sector accounting for the rest.

The top five most popular crowdfunding categories in 2014 were as follows:

Business and entrepreneurship remained as the most popular crowdfunding category, collecting $6.7 billion in 2014, which represents 41.3% of total volume.

Social causes accounted for $3.06 billion of crowdfunding raised in 2014.